Airgas Inc. (ARG) filed Quarterly Report for the period ended 2009-09-30.
Airgas Inc. has a market cap of $3.81 billion; its shares were traded at around $46.6 with a P/E ratio of 16.76 and P/S ratio of 0.88. The dividend yield of Airgas Inc. stocks is 1.55%. Airgas Inc. had an annual average earning growth of 10.7% over the past 10 years. GuruFocus rated Airgas Inc. the business predictability rank of 2-star.
Highlight of Business Operations:
The Company’s operating margin declined 110 basis points to 11.4% in the current quarter compared to 12.5% in the prior year quarter, but improved 40 basis points from 11.0% in the quarter ended June 30, 2009. The current quarter’s operating margin reflects the effect of lower sales, partially offset by gross margin expansion of 370 basis points from the prior year quarter and the impact of expense reduction initiatives. The gross profit margin (excluding depreciation) expansion is primarily a result of the Company’s product mix shifting away from hardgoods towards gas and rent, which carry a higher gross margin than hardgoods. Selling, distribution and administrative (“SD&A”) expenses in the current quarter increased to 38.2% of sales, an increase of 340 basis points over the prior year quarter. The increase in SD&A expenses as a percent of sales was driven by the decline in sales and the mix shift to gas and rent, which carry higher operating expenses in relation to sales than hardgoods. The increase in operating expenses as a percentage of sales was mitigated by the Company’s expense reduction initiatives executed in both the current quarter and the fourth quarter of the prior year. The current quarter operating expenses also include a charge of $1.7 million ($1 million after tax) or $0.01 per diluted share related to partial withdrawal from a multi-employer pension plan. Additionally, the Company incurred a charge related to the early extinguishment of debt of $2 million ($1.3 million after tax) or $0.02 per diluted share during the current quarter. Net earnings per diluted share declined 24% in the current quarter to $0.65 compared to $0.86 in the prior year quarter.
Current challenging economic conditions provide limited visibility into future sales and earnings, which should be taken into consideration when evaluating the Company’s guidance. Looking forward, the Company expects earnings per diluted share of $0.62 to $0.65 for the third quarter ending December 31, 2009, which includes the $0.05 per diluted share loss on the early extinguishment of debt, noted above. For fiscal 2010, the Company expects earnings of $2.62 to $2.72 per diluted share, which includes $0.03 per diluted share of charges in the second quarter related to the withdrawal from a multi-employer pension plan and the early debt extinguishment, and $0.05 per diluted share of charges in the third quarter related to the early debt extinguishment, noted above. Due to the uncertainties surrounding contract negotiations and the determination of multi-employer pension plan withdrawal liabilities, the third quarter and fiscal 2010 guidance above does not incorporate the potential impact of future multi-employer pension plan withdrawal charges.
SD&A expenses declined $36 million, or 9%, in the current quarter as compared to the prior year quarter resulting from a $43 million decline in operating costs offset by approximately $7 million of incremental operating costs associated with acquired businesses. The $43 million decrease in SD&A expense reflects lower variable costs due to the decline in sales, the benefits from the Company’s expense reduction initiatives and lower diesel fuel costs. As a percentage of net sales, SD&A expense increased 340 basis points to 38.2% compared to 34.8% in the prior year quarter driven by the overall decline in sales and by the shift in sales mix to gas, which carries higher operating expenses in relation to sales and corresponding higher gross margins. Additionally, current quarter SD&A expenses include a charge of $1.7 million related to partial withdrawal from a multi-employer pension plan.
Net earnings were $54.5 million, or $0.65 per diluted share, compared to $72.8 million, or $0.86 per diluted share, in the prior year quarter. The current quarter’s net earnings include the loss related to the early debt extinguishment of $1.3 million, or $0.02 per diluted share, and the charge related to partial withdrawal from a multi-employer pension plan of $1.0 million, or $0.01 per diluted share.
SD&A expenses declined $51 million, or 6%, in the current period as compared to the prior year period resulting from a $72 million decline in operating costs offset by approximately $21 million of incremental operating costs associated with acquired businesses. The $72 million decrease in SD&A expense reflects lower variable costs due to the decline in sales, the benefits from the Company’s expense reduction initiatives and lower diesel fuel costs. As a percentage of net sales, SD&A expense increased 350 basis points to 38.3% compared to 34.8% in the prior year period driven by the overall decline in sales and by the shift in sales mix to gas, which carries higher operating expense in relation to sales and corresponding higher gross margins. Additionally, current period SD&A expenses include a charge of $1.7 million related to partial withdrawal from a multi-employer pension plan.
Depreciation expense of $104 million increased $7 million, or 7%, in the current period as compared to the prior year period. Acquired businesses contributed approximately $2 million of the increase. The remaining increase primarily reflects capital investments in revenue generating assets to support customer demand, such as cylinders, bulk tanks, and rental welders, the two new air separation units in New Carlisle, Indiana, and Carrollton, Kentucky, and infrastructure spending on cylinder fill plants and branch locations. Amortization expense of $10 million in the current period decreased slightly as compared to the prior year period’s amortization expense of $11 million.
ARG is in the portfolios of Ron Baron of Baron Funds, Richard Aster Jr of Meridian Fund.
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